the economics of money, banking, and financial markets

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21.2 Budget Deficits and Inflation

1. 
   

   Budget deficits can be an important source of ____ monetary policy.
   A) inflationary
   B) recessionary
   C) federal
   D) fiscal
   Answer: A
   Diff: 1 Type: MC Page Ref: 531
   Skill: Recall
   Objective List: 21.1 Describe how the demand for money is determined

   
   


2. 
   

   The government can ____ by ____.
   A) raise revenue; levying taxes
   B) go into debt; issuing government bonds.
   C) create money; levying taxes.
   D) both A and B.
   Answer: D
   Diff: 1 Type: MC Page Ref: 531
   Skill: Recall
   Objective List: 21.1 Describe how the demand for money is determined

   
   


3. 
   

   If the government deficit is financed by an increase in bond holdings by the public ____.
   A) there is no effect of the monetary base
   B) there is no effect on the money supply
   C) the money supply increases
   D) both A and B
   Answer: D
   Diff: 1 Type: MC Page Ref: 531
   Skill: Recall
   Objective List: 21.1 Describe how the demand for money is determined

   
   


4. 
   

   One part of monetizing the debt is for the central bank to ____.
   A) conduct an open market purchase
   B) conduct an open market sale
   C) increasing the overnight rate
   D) decreasing the overnight rate
   Answer: A
   Diff: 1 Type: MC Page Ref: 531 - 532
   Skill: Recall
   Objective List: 21.1 Describe how the demand for money is determined